Introduction to binary options

Binary options have long been considered exotic ones on the stock market, that’s why serious stock-exchange traders preferred not to deal with this kind of options. But soon they will be forced to revise their attitude to this financial tool since the first steps towards its acknowledgement have already been made on The Chicago Stock Exchange. Anyway, each online investor can try one’s capacities in it without drilling down into all trading nuances…

Let’s start with the binary options definition:

A binary option is a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money (Investopedia).

In other words, it is not mandatory to possess deep knowledge of the financial field to successfully cope with this tool in the off-exchange medium. Everything a trader needs to do is to forecast whether price for a chosen basic asset (currency pairs/precious metals/goods) increases (Call) or falls down (Put). And there are only two ways of how a deal ends – you either get everything (a fixed volume of profits) or nothing (if your forecast is wrong, you will go with 0*):

*Some brokers (AnyOption, OptionBit, Alpari and others) return up to 15%-20% from investments in case your position failed.

Even though this game is quite simple, it can be maximally profitable if you don’t guess while delivering stakes. Instead, you need to get acquainted with the market situation of the basic assets you’ve chosen (as a rule, Internet-based broker companies offer to work with popular currency pairs, gold/silver and indices) and check expert estimations before you actually get started.

In order to join existing binary options traders, you are supposed to make just few steps:

1. Sign up on the Forex brokers site you’ve picked.

2. Replenish your system account with some amount of money (at least $200 are required to start trading).

3. Choose binary options among listed trading products.

4. Decide upon a basic asset (we’ve talked about it).

5. Set expiry period of your forecast (from few minutes to one month).

6. Forecast the direction of the price change (growth/fall/reaching of a certain level).

7. Set an investment rate, according to which your interest will be charged (lower limits vary in different countries; a minimum entry is $5). You can often define upper limits yourself, but I don’t recommend you to invest all money in your account into this investment tool.

8. Learn some information about profits**/return of investments.

9. Buy the option contract.

10. Control the fulfillment process by this contract.

**Each broker sets a maximum return level individually (it’s 65%-90% per average). Alpari, a well-known trading platform, promises to return up to 100% from investments.

Normally, brokers allow hedging investor’s capital by means of choice of one or several binary options types:

– Call/Put: it’s one of the most popular kinds of digital options that requires setting the price position (growth/decrease) on a basic asset by the moment of contract closure (for instance, our asset is gold (and its current price in 1 000 USD per ounce) and we say that in half an hour its price in USD will fall down. Then our forecast is “Put” and we will wait for expiry. If this condition has been observed, promised profit is sent to our account);

– One Touch: a trader receives income in case a growth (Call) or lowering (Put) price indicator touches a certain level;

– Quick Options: a working mechanism of this option is the same as in the Call/Put type, but it takes just few minutes;

– Range Call/Put: a trader receives income in case a growth (Call) or lowering (Put) price indicator appears in a chosen range.

Despite the fact that in practice binary options appear to be a quite profitable investment product, there are several trading strategies allowing to regain losses or call a halt to a launched contract with some extent of probability. The first approach (it’s not intended to novices!) is to use the Martingale strategy (if your trade brings no profit, the previous rate has to be doubled up to receive income now). Let’s say that you’ve invested $10 (the % rate is 80%; you will be returned 15% if you fail) and your forecast is erroneous. Now you have $1.5 in your account and no $8.5 more. The next contract requires a doubled investment, i. e. $10*2=$20. If our expectations come true this time, we will get $27.5 of total return ($20*80%+$20-$8.5). But if we fail again, we have to continue doubling our rate ($20*2) until we gain profit. This tactics is rather risky and can be used only by experienced traders (short-term options are preferable), otherwise probability of losing everything is much higher than the level of potential profit.

The second approach is to use the premature closure function, with which you can stop the deal at any point as long as you find it beneficial. And the last one for today is to apply the Roll Over option, by means of which you can prolong the expiration term upon your contract (as you might have guessed, this function helps avoid losses when the situation is nothing good to you).

Why is it worth taking a try at it as a binary options investor?

1. Relatively small financial risks (actually, you don’t buy an asset itself; you just purchase a contract at $5+).

2. A good choice of basic assets (choose a basic tool according to your preferences).

3. An unusual way of capital diversification (if you have previously dealt mainly with HYIPs and PAMM, you can add it to your arsenal).

4. A chance to be in trader’s skin without actually being him/her (the trade is conducted on the off-exchange market).

5. A relatively transparent and accessible for control investment process.

6. Good interest rates and backup options (it appears to be quite real to earn up to 100% from a deposit within counted minutes/hours).

Everyone who is interested in such a way of earning money is invited to share one’s impressions per trading results with us in the Comments line. The only thing is that you should not forget about precaution measures – a risk factor is everywhere, even if you don’t plan to invest large sums.

Have a successful try!

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